Question

Money demand is M^d=P*(100+0.06*Y-100i), where Y=2000, r=4%, expected inflation rate =1%. If the money supply is 1075, what is the equilibrium price that clears the asset market?

Answer #1

QUESTION 3
Money demand is M^d=P*(100+0.06*Y-100i), where Y=3000, r=4%,
expected inflation rate =1%. If the money supply is 1075, what is
the equilibrium price that clears the asset market?
less than or equal to 3.5
greater than 3.5 and less than or equal to 4.0
greater than 4.0 and less than or equal to 4.5
greater than 4.5 and less than or equal to 5.0
greater than 5.0

Assume the real money demand function is
L(Y;i)=2000+0.3Y-5000i
where Y is real output, P is the price level, i is the nominal
interest rate on non-monetary assets and monetary assets earn no
interest.
a) Assuming that the asset market is in equilibrium at i=0.05.
Find equilibrium levels of real money supply, nominal money supply,
and the velocity of money if P=100, and
Y=2000.
b) Find the real income elasticity of money demand at the
equilibrium level of money balances found...

Assume that the demand for real money balance, (M/P) d = 0.5Y –
200i, where Y is national income and i is the nominal interest rate
(in percent). The real interest rate r is fixed at 2 percent by the
investment and saving functions. The expected inflation rate is 1
percent, real GDP is 5,000 and the money supply is 209,110.
a. What is the nominal interest rate?
b. What is the price level?
c. Now suppose Y is 2,000,...

Assume that the real money balance (M/P) is M/P=0.6Y-100i, where
Y is the national income and I is the nominal interest rate. The
real interest rate "r" is fixed at 3 percent by the investment and
saving functions. The expected inflation rate equals the rate of
nominal money growth.
-If Y is 1,000, M is 100, and the growth rate of nominal money
is 2.5%, what must "i" and "P" be?
-If Y is 1,000, M is 100 and the...

1 Assume that the demand for real money balance (M/P) is M/P =
0.6Y – 100i, where Y is national income and i is the nominal
interest rate (in percent). The real interest rate r is fixed at 3
percent by the investment and saving functions. The expected
inflation rate equals the rate of nominal money growth.
a. If Y is 1,000, M is 100, and the growth rate of nominal money
is 1 percent, what must i and P...

Suppose that the real money demand function is
L(Y, r+πe)=0.01Yr+πe ,L(Y, r+πe)=0.01Yr+πe ,
where YY is real output, rr is the real interest rate, and πeπe
is the expected rate of inflation. Real output is constant over
time at Y=150Y=150. The real interest rate is fixed in the goods
market at r=0.05r=0.05 per year.
Suppose that the nominal money supply is growing at the rate of
10% per year and that this growth rate is expected to persist
forever. Currently,...

In Freedonia the real demand for money is L = (M/P)d
= kY, k a constant. The money supply is growing at 12% per year and
real income, Y, is growing at 4% per year.
(a) What is the income velocity of money in Freedonia?
(b) What is Freedonia’s annual inflation rate?
(c) Suppose the income velocity of money is growing at the rate
of 1%. What is Freedonia’s annual rate of inflation.

Suppose the demand for real money balances is Md/P = L(Y, i),
where L(Y, i) is an increasing function of income Y and a
decreasing function of the nominal inter- est rate i. Assume that
the interest elasticity of money demand is infinite when the
nominal interest rate is zero. Money-market equilibrium is
represented by the equation Ms/P = L(Y, i), where Ms is the money
supply controlled by the central bank and P is the price level. The
LM...

The real money demand curve is given by: L d (R, Y ) = 0.5Y −
100R − 20 where Y is the real GDP and R refers to the interest
rate. The initial monetary base level MB = 100. The initial money
supply level Ms = 200, price level P = 10 and initial output level
Y = 100. 1. Calculate the initial money multiplier and equilibrium
interest rate. The Fed increases the monetary base by 10% through
open...

Assuming output Y is determined exogenously, and demand for real
money balances is given by (M/P) d = kY , answer the following:
(a) Suppose k changes from period to period. Using the quantity
equation MV = P Y , show how inflation is related to money growth,
output growth, and growth in k.
(b) Holding the money supply M and output Y constant, does a
fall in k lead to inflation, deflation, or no change in the price
level?...

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